Motown winter: Can sales revive if RBI lowers rates?

This in spite of the new launches by many of them (General Motors' Sail U-VA and Tata Motors' Manza Club Class sedan and Safari Storme, for example) and the heavy-duty discounts put on offer by car dealers.

December, every year, is a lean month for car sales because buyers like to wait for the next year.

It comes in handy during resale - imagine owning a 2012 model when by waiting for a month you could have owned a 2013 model. Carmakers say this shows that consumer sentiment is at rock bottom.

But there could be another factor at work here: expectations that banks may soon lower interest rates.

Finance Minister P Chidambaram has made innumerable statements that the government has done its bit to rein in its fiscal deficit and curb inflation, and therefore it's time for the Reserve Bank of India to cut interest rates.

Motown winter: Can sales revive if RBI lowers rates?

All of this has strengthened the expectations of an interest rate cut when the next review of monetary policy takes place later this month. Ad that took its toll on car sales in December.

That's perhaps why Maruti Suzuki's entry-level cars such as the Alto, A-Star and WagonR, which cater to highly price-sensitive buyers, saw a 15 per cent dip in sales during December, while the compact segment (the Swift, Ritz and Estilo) grew almost 10 per cent.

In that sense, December sales could be a blip, and demand could pick up whenever interest rates are lowered. The headroom for growth is still there.

Careful analysis of the December numbers shows that Maruti Suzuki's growth has been led by two models: the Swift D'Zire and the Ertiga. Both cars are available in models that run on diesel.

Mahindra & Mahindra's strong performance too is led by the heavy presence of diesel SUVs in its portfolio. People are still buying diesel cars in large numbers in the hope that the government will not reduce the subsidy on the fuel.

The government continues to delay "biting the bullet" and cutting subsidies. If it does, that could add another twist to the unfolding drama in the car market.